Heavy Reading: Cable Biz Sales to Hit $8.5B

NEW YORK -- Future of Cable Business Services -- Major US cable operators are on track to reach $8.5 billion in commercial service revenues this year, up more than 20% from nearly $7 billion a year ago, according to the latest research from Heavy Reading.

In his opening presentation here Wednesday, Light Reading Cable/Video Practice Leader Alan Breznick said US cable commercial revenues are still growing so strongly that they could hit $10 billion next year. Yet, even with that growth, there is still plenty of business opportunity left for cable, which today takes home just 6% of the annual US business telecom spend, he said.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) continues to lead the pack with $2.4 billion in revenue through the third quarter of this year, nearly matching its full-year total of 2012. At this pace, Comcast will almost certainly become the first MSO to crack the $3 billion barrier for the full year, just a year after it became the first to reach $2 billion.

Time Warner Cable Inc. (NYSE: TWC) follows with $1.7 billion, close to its $1.9 billion for all of 2012. As a result, TW Cable will easily become the second MSO to cross the $2 billion line by year's end.

Privately owned Cox Communications Inc. , which was once the cable leader, is now well behind in third place with $1.2 billion, according to Heavy Reading estimates. But Cox, which took in an estimated $1.4 billion for all of 2012, is still well ahead of last year's pace.

"The only MSO not showing strong growth right now is Cablevision Systems' Lightpath unit, which focuses on mid-sized and larger firms," Breznick says. "That's why Cablevision execs said they would address the unit's laggard growth on the company's last earnings call."

For all that growth, however, cable is just beginning to tap its potential, Breznick notes. The US market of 27 million companies spends an estimated $130 billion to $140 billion on telecom services annually, meaning cable takes home only about 6% of that. Cable has particular opportunity in the very small and SMB market spaces, which represent the vast majority of the total number.

"Not only are these businesses that might feel neglected by their current service providers, but they commonly have access to cable hybrid fiber-coax (HFC) networks," Breznick notes. "The cable industry's HFC lines already pass more than three-quarters of the SMBs in the US."

The market opportunity in the very small/SMB market varies from about $50 billion for Comcast, to $21 billion for TWC, more than $10 billion for Cox, $9.5 billion for Charter, and up to $6 billion for Cablevision.

One thing cable must do to capture more of that opportunity, however, is to improve its business data satisfaction ratings, Breznick notes. Cable actually does well among very small businesses -- those with fewer than 20 employees. Four cable operators, led by Cox but including Cablevision, Charter, and Comcast, outranked Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T) and CenturyLink Inc. (NYSE: CTL) in the J.D. Power and Associates 2013 US Business Wireline Satisfaction Study. Only Time Warner Cable struggles with this market segment.

Yet, in the SMB segment, only Cox outlasted Verizon and Frontier Communications Corp. (NYSE: FTR) in the J.D. Power ratings. And in the enterprise segment, Time Warner Cable was the only MSO that scored well, beating Verizon and CenturyLink to top the list.

Breznick noted that cable still seems to be hurting from the persistent public perception that its services don't match the telecom players for quality and assurance. In a recent non-scientific poll on the Light Reading site, one third of respondents said cable's "poor reputation for service performance and reliability" was the industry's single biggest challenge. (See Cable Can't Shake Poor Reputation.)

Re: Wow.... amazing growth! I would agree, Alan. They have been trying to combat this for a few years now. They invested in increasing their FiOS/U-verse footprints, put together SMB specific bundles, targeted messaging and ads to this segment and most importantly upped their spend to get the word out. In other words they started paying attention to this base. That being said, this is still a secondary market to them compared to the larger business segments so the level of their commitment is still somewhat of a question.

The SMB segment is still cable's primary focus so I would expect them to continue to take share, albeit at slower growth rates. After all the pie is only so big and there is an inertia effect. Switching services is still viewed as a negative expereince so businesses need a compelling reason to make the move. One theory for the large growth rates in this segment to date is that cable picked off the low hanging fruit that was already fed up with low performing telco services. Time will tell if the above changes made by the major telcos will help stem the tide or cable cos will continue to capitalize.

Re: Wow.... amazing growth! So how do you expect the telcos to respond to this invasion of their traditional turf? Will they continue to let cable cos pick away at their SMB customers and just defend their enterprise base? Or will they aggressively use FiOS, U-verse and the like to strike back? I'm betting on the latter right now. They can't possibly like what they're seeing in the marketplace right now.

Re: Wow.... amazing growth! According to the article the $8.5B is 6% of the total opportunity. Having performed numerous marketing sizing studies in this industry the numbers are directionally correct. (All depends on what services you throw in the mix, whether or not you include home based businesses etc). Enterprise is a big ARPU business but decidedly much smaller on the whole than the v/SMB market.
Setting aside the CTBH business, cable will continue to target this v/SMB market to meet its growth objectives (while picking off segments of the larger businesses). Telcos still don't pay as much attention as they should here and cable is actually developing credibility. Cable will continue to steal telco share while also layering in additional services (eg cloud) to their existing base. This segment is where "telcoland" is feeling the brunt of the pain. I see pain here as not just revenue lost now, which as mentioned earlier is probably on the margin for big business telcos, but the increasing YoY loss of business market share. For the smaller telcos loss of both revenue and businesses are major issues.
Incidentally, while cable has started to have a little success in the Enterprise space the telcos own this market. To nobody's surprise at this point cable lacks the credibility and some of the operational capabilities needed to serve these businesses to consistently win.

"The market opportunity in the very small/SMB market varies from about $50 billion for Comcast, to $21 billion for TWC, more than $10 billion for Cox, $9.5 billion for Charter, and up to $6 billion for Cablevision. "

That says there is a TMO (Total Market Opportunity) $96.5B and that claim is JUST for the small to mid size businesses. That $8.5B is less than 10% market share, if those numbers are accurate.

That would tell me that those numbers are in the chaff for any major business telco and would not be noticed. Now I have to believe that you are more right with your comment and there must be some error in the numbers.

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